Oil rally halted after rising prospects of Iran deal

US Oil prices hit their highest levels since 2008 on Thursday, over Russia supply fears. Brent oil price almost hit $120 per barrel on Thursday for the first time in almost a decade, while WTI climbed to over $117 per barrel, amid fears that the war between Russia and Ukraine would disrupt global oil and natural gas supplies.

WTI price retreated later on Thursday to approximately $110 per barrel, after rising prospects of an Iran deal over its nuclear program. If the deal goes through, Iran could add as many as 900,000 barrels a day to global supplies, which might provide some relief to the energy crisis. WTI is trading in an uptrend, but in case the uptrend is reversed, support may be found near $88.5 per barrel and further down around $82.4 per barrel.

Oil prices have been buoyed this week by the announcement of heavy sanctions against Russia. Even though western sanctions avoided targeting the sensitive energy sector as much as possible, there are increasing fears that the war would disrupt the distribution of oil. Germany has already suspended the approval of the Nord Stream 2 pipeline, a move that may cause an energy crisis in Europe, which depends on Russia for approximately 40% of its gas. Prices of energy-related assets are soaring and European natural gas prices surged on Thursday to an all-time high of €200 a megawatt-hour.

Even though the energy sector wasn’t hit directly by western sanctions, most energy consumers, especially in Europe, are boycotting Russia’s oil. Most consumers are seeking alternative suppliers, as the cost and the risk of importing oil from Russia have become prohibitively high. Russia is the world’s second-largest oil exporter after Saudi Arabia, shipping around 5 million barrels of crude oil per day, approximately half of which goes to the Eurozone. 

OPEC+ meetings took place on Wednesday and were dominated by the war between Russia and Ukraine. The organization announced that it would hold its production steady, despite soaring oil prices. OPEC+ has decided to maintain its goal of increasing oil output by 400,000 barrels per day, despite the war in Ukraine. Global oil prices have skyrocketed since OPEC’s last meeting in February, and one of the organization’s objectives will be to avoid a disruption in the distribution of oil, which would push prices even higher. 

US Crude Oil Inventories also fell by 2.6 million barrels on Wednesday, driving the price of oil further up. The International Energy Agency agreed on Tuesday to release 60 million barrels of crude oil from strategic reserves to check the ascend of oil prices. The amount, however, fell short of market expectations and will do little to alleviate pressure on the energy sector. 

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Written by:
Myrsini Giannouli

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